Decreased FY24 M&A activity to persist, says HLB Mann Judd
Merger and acquisition activity has seen a significant decline in the past 12 months, according to HLB Mann Judd.
Recent research from HLB Mann Judd has revealed a notable decline in the level of M&A activity over the last 12 months, caused by tighter economic conditions.
The HLB Mann Judd Australian M&A Deal Summary FY2024 also said the M&A outlook “remains subdued” as global economic and geopolitical uncertainties continue to weigh on activity.
The firm said the report focused on analyses of deal trends, valuations and industry dynamics.
The subdued activity has been attributed to tight economic conditions, increased interest rates and a more cautious approach from investors.
The report reflected a 21 per cent fall to 945 in M&A deals during the 2024 financial year.
In the previous year, 1,190 M&A deals were completed and 1,487 the year before that.
HLB Mann Judd Sydney partner, Nicholas Guest, said this decline is due to stricter financial conditions, such as a higher cost of capital.
“The reduced number of deals across all quarters in FY2024 compared to FY2023 and FY2022 indicated that investors are continuing to take a cautious approach when meeting vendor pricing expectations in light of high interest rates, increased inflation and ongoing geopolitical tensions,” Guest said.
“As a result, some transactions continue to be put on hold as dealmakers prioritise extending their operating cash runway, delaying deals until market conditions improve and pursuing those transactions that offer clear value add.”
Guest said there was a growing appetite for deals despite the market continuing to navigate economic uncertainties.
According to the report, private investors are cautious of M&A opportunities in the Australian SME segment.
However, there has been a large increase in institutional investor numbers from the superannuation sector.
Guest said private investors will continue to be cautious in the SME segment until there is an improvement in the current economic and geopolitical environment.
“We anticipate private investors will be prioritising investments in ventures with strong business fundamentals, such as stable earnings and clear value propositions to optimise their portfolios amid the persistent high interest rates and inflationary pressures,” he said.
The firm said though the report highlighted a subdued outlook, there are still some positive aspects.
The year ended 30 June 2024 saw an increase in deals exceeding $1 billion with 26 deals made compared to just nine the previous year.
The increase in deals above $1 billion drove the average transaction value up to $121 million, up from $89 million in FY2023.
Guest said this indicates that larger businesses with available finance are seizing the opportunity to pursue M&A deals previously viewed as overpriced and out of reach.
“Additionally, the trend may reflect dealmakers’ prioritising deals with clear strategic advantages and long-term potential over short-term investments,” Guest said.
“However, the increased cost of debt and equity, coupled with stricter investment and lending criteria from financiers and equity investors respectively, has led many to adopt a more cautious approach when evaluating M&A opportunities, resulting in a wider bid-ask spread.”
Another notable feature of the report was the overall average multiple achieved for completed deals decreased from 10.3x in FY2023 to 9.3x in FY2024.
The industries to have experienced a decrease in the average transaction valuation multiple during FY2024 include consumer discretionary, consumer staples, information technology and industrials.
The only industry to see an increase in this area during FY2024 was the materials industry.
Guest said the Australian government’s commitment to achieving net-zero emissions by 2050 could also boost M&A activity within energy transition infrastructures.
“This trend was evident in FY2023, when the Clean Energy Finance Corporation, a government-backed fund, invested in 50 new and follow-on transactions, committing a total of $1.9 billion to ventures aimed at reducing emissions across the Australian economy.”
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